Should I get a loan or use my Savings?

Should I get a loan or use my Savings?

If we have savings tucked away and need to buy something, we can be in a quandary as to whether to use those savings to pay for it or whether we should take out a loan. There are many things that we need to consider when making this decision and it can be hard to look at it without emotion, but if we want to do the best thing financially this is what we will need to do. We will need to consider the costs, the emotional point of view, whether we need money to fall back on and whether we really need the money in the first place.

Compare costs

The cost is one of the most important things to consider when you are deciding whether to use your savings or to get a loan. Firstly take a look at how much money you are making form your savings. If you have an instant access savings account, then chances are that the interest rate is pretty low. However, if you have the money invested, then it could be making significantly more.

Next you will need to see how much the loan will cost. Comparing the interest rate gives you a good idea, but there are other costs that you will need to consider as well. Loans may have setup or administration fees, for example. They may also have fees for repaying them early. They will have fees if you do not make a payment in full or make it late or skip one altogether. It is worth being aware of all of these costs even if you think that you will not miss a repayment as there is always a risk, however small, that this could happen.
Obviously it is wise to compare different loans as their costs will vary. You will probably want to compare the cheapest loan option with the return you are getting on your savings so that you can calculate which will be the best option.

Consider effort

It will be likely that you have used a lot of effort in order to save up the money that you have. This means that parting with it can be really difficult. We can often feel attached to it because we worked so hard to get it and feel like we want to keep it because it was so hard to get. This feeling can be even stronger when the money is being saved up for a specific purpose perhaps to pay for a holiday, new car or something like that. However, we need to try not to let emotion get in the way. If we take a loan we will have to make regular repayments to repay it and pay out interest as well. If we use our savings we will avoid that extra cost and we can spend what we would have used for repayments to put money back into the savings account and might even end up with more in there than we had to start with.

Money to fall back on

Many people do get concerned if they use up all of their savings that they will not have anything to fall back on. However, using a loan is an expensive way to keep that back up money. If you have an overdraft or credit card, then you do have funds that you can fall back on and so if there is an emergency you will still have some money there if you need it. If you do not have these then there are still ways that you can get money, perhaps by applying for them or by getting an additional loan. However, it is worth being positive and thinking that there may be no need to want money to fall back on. If you are careful with your spending while you are replenishing your savings account, then you should not need extra money. If you only buy basics then it should not take long to build up a pot of money again.

Do I need the loan?

It is worth asking yourself whether you really need to buy the item that you are pondering how to finance. It might be that you can wait a while before you buy it and save up for it. This would mean that you would no longer have this dilemma as you would not need to borrow money or use your savings. It can be worth deciding whether you can wait for the item and calculating how long it might take you to save up for it if you are really careful. You could even consider ways that you might be able to make some extra money so that you can buy it more quickly. You might find that it will not take that long and you will not have to worry about the stress of a loan or spending your precious savings.

Is it wise to use my Credit Card this Christmas?

Is it wise to use my Credit Card this Christmas?

Using a credit card is something that many of us do automatically but it is something that we should really think about. This is because a credit card will normally cost us money to use and we should be trying to avoid spending unnecessary money if we can help it. However, there are advantages to using a credit card and it is worth thinking through the advantages and disadvantages before you use the card.

Costs of a credit card

Costs of a credit card will vary. Different cards have different rates and so it is worth comparing these to see which is cheaper. If you do not repay the full balance each month on your credit card then the cost can be high and so it is well worth comparing the interest rates and fees of different cards to see which might be the best for you to use. However, if you repay the full balance each month, then the cost to you is nothing. Therefore you should be looking for other features in a credit card. Perhaps looking for a cashback card could be worth it as you will actually be paid for using the card. Although the cashback is likely to be low, you will still get more than you would if you used a card which did not have this facility. You do need to be careful though as a cashback card will have higher interest and so if there is any risk that you will not be able to make a full repayment each month then this may not be a wise idea for you.

Free credit with the card

Using a credit card is a great way to buy now and to pay later. You will not have to pay for items that you buy on the card for about a month and so it means that you can spread the cost by buying some items on the card. Of course, there is always a risk that you will overspend because it is not easy to remember what you have used the card to buy. However, if you are careful, you should be able to track your spending, either by noting it down yourself or by checking online if there is an online banking option with your card.

It is really important not to think that your credit card is just free money though. Although you can use it for free, unless you pay off the full balance when you get the bill, there will be a charge and you will be expected to repay what you have spent eventually. Just because there is no formal repayment plan, like you get with some loans, it does not mean that you should not repay it. In fact having no repayment plan is a big disadvantage as it means that you are not forced to pay too much back and therefore the charges on the loan add up and up.

Security of using a card

There is an added security with using a credit card compared to other means of paying. People can often be scared of buying online, for example, but a credit card offers some protection. Although it is possible that someone could intercept your card number and use it, they cannot get your current account details. The companies are also used to dealing with fraud and tend to have a fraud department that will track transactions and put a stop on the card if they notice anything suspicious. They will also cancel a card and send out a new one if you report fraud. Credit card companies have insurance built in and so if you have money stolen from it, they will repay it to you. Also if you buy goods and they are faulty or do not turn up then their insurance will pay out for you, so that you do not lose out. You will not get this sort of cover if you pay by other means such as debit card, BACS or Paypal and the credit card can be the best way to buy things, especially if they are of high value or you buy online.

Conclusion

So as you can see there are many advantages to using a credit card. However, you do need to be careful as it can be costly. If you set up a direct debit to pay your credit card bill in full each month, then there is no risk that you will be charged any interest and you can take advantage of all of the services offered by the credit card company without actually paying for them. This means that the get the insurance, fraud protection and free credit as well as cashback, if the card offers it, all for nothing which can be well worth it.